A valuable player in the grey

Tim Hadingham, Manager of Economic Research at the Department of Trade and Investment at the City of Cape Town

Economic development agencies often operate outside the scope of the public and private sector, with mandates that could act as go-betweens where pre-defined mandates fail.

Whether examining recent reports by the World Health Organization, South African Police Service, or any related investigative document that deals with social ills and well-being in South Africa, a striking correlation can be found between poverty, ill-health and deviant behaviour.

The enormous task of economically empowering South African citizens is one that both the public and private sectors have taken on, some driven by profit, others by promises. With a mandate of decreasing poverty through empowerment and job creation among others, economic development agencies (EDAs) often function in the grey area outside the public-private dichotomy.

Tim Hadingham, current Manager of Economic Research at the Department of Trade and Investment at the City of Cape Town has been actively involved with these agencies during his time working with the Department of Cooperative Governance and Traditional Affairs (CoGTA), as well as the Industrial Development Corporation (IDC) and the German development corporation, GIZ. In this issue Hadingham shares his insights on the role and functions of these entities in an exclusive interview with Opportunity.

Hadingham initiates the discussion by explaining that EDAs are organisations that play a facilitating or mediating role in “the space between the public and private sector”. According to him, they are not driven by the regulatory and legislative mandates of government, hence can be flexible and responsive to changes in the economy. They are neither driven by the profit motivation of the private sector and can therefore look beyond the bottom line of individual firms he says.

“They are essentially a response to a failure of the economic delivery system to deliver the outcomes desired by government or the private sector. Consequently, they often do things outside the mandate of government and that individual firms are unlikely to take on themselves (as competitors may free-ride on their initiatives),” Hadingham says.

Important vehicles

The South African Constitution and various pieces of local government legislation give municipalities a mandate to act as a catalyst for sustainable economic development. One of the important vehicles to assist in the delivery of these objectives are Economic Development Agencies. As Hadingham explains, EDAs can target any economic activity, but seem to work best where they respond to a clearly defined problem.

He refers to examples such as the Eastern Cape based Aspire and Nelson Mandela Bay Agency. As he mentions, Aspire focussed on the regeneration of small towns in the Amathole district in the Eastern Cape, and although the focus was on regeneration, the approach differed depending on the town and its unique potential or competitive advantage. The Nelson Mandela Bay Agency was initially set up to deal with inner city regeneration and has since redefined itself around new economic development challenges as the inner city has developed he explains. .

“Some agencies can be more sector focussed, looking at supply chains, clusters etc. Others are more concerned with specific geographies, while others target skills development, access to finance, business support, marketing and bulk buying of production inputs. EDAs can be hands on for example being involved in firms operations or facilitative, creating spaces where firms can interact and improve themselves. EDAs can also be a configuration of some or all of the above.

“The key thing however is that they respond to a well-defined economic problem. Many agencies in South Africa exist because there was ‘money on the table’ and there was no real economic logic or rationale to the EDA’s proposed activities. However, their existence is not a problem, but their programme of action is,” he says.

Looking at some of the challenges faced by Economic Development Agencies in South Africa, Hadingham say that the main challenge is defining, though a rigorous process with key economic stakeholders, the economic problem that the EDA is supposed to solve. “EDAs can easily become rule bound bureaucracies rather than the responsive, flexible agents of change that they are supposed to be,” he says.

Local Economic Development (LED) and EDAs can be closely associated, but as Hadingham points out, should not be confused. “EDAs are not a replacement for the LED function in municipalities, municipalities should retain this mandate. The activities of the EDA should complement the municipalities LED priorities and other service delivery activities.

“LED is a relatively ‘new’ local government function and even 20 years into the new South Africa, quite what this function is supposed to achieve and how it is supposed to do that is not clearly understood – by both administrative and political leadership. In smaller municipalities the function is often not prioritised with the Integrated Development Planning (IDP) officer also ‘doing LED’. As the IDP is a statutory requirement, the focus is naturally on the IDP,” he says.

Limited capacity

The question could easily be posed that: if the local component is crucial to economic development since this is where the projects take place and the impacts are most profoundly demonstrated, but the capacity is limited in the local government sphere, how will Economic Development Agencies help to increase that capacity?

To this Hadingham answers that, “EDAs may be better placed to attract talent that municipalities, which are perceived (probably rightfully so) as overly bureaucratic and less attractive as a career option. Depending on how the EDA is established and funded, the salary packages offered by EDA may be more lucrative than local government. Also, where a municipality has very little capacity the EDA provides warm bodies that can focus exclusively in economic development. This in itself enhances capacity.”

As a focussed delivery mechanism that bridges the gap between the private and (local) public sector, Economic Development Agencies will enhance the development of local and regional economies. According to Hadingham, when looking at South Africa’s trade and investment landscape, it will definitely have an impact.

“Things will happen that probably would not have happened spontaneously. However, measuring the impact will be difficult as EDAs tend to deal with ‘soft’ things. It is easy to measure the performance of a roads agency which deals with how many kilometres of road were built and maintained in 2014. In the economic development sphere, this is trickier when you ask, for example: how many jobs were created, or how many firms were established? These questions can be answered, but the creation of these jobs and new firms cannot as easily be attributed to the activities of an EDA (or any agent for that matter),” he says.

In terms of how EDAs affect those on a grassroots level, the people who are often most in need of empowerment, Hadingham highlights that there is indeed a lot of community involvement, but that the real question should rather by how much community involvement is necessary. As he points out, involvement by economic stakeholders is crucial. These include trade unions, firms, business formations, government and economic NGAs since, according to him, they clearly add value and bring their perspectives on the economic development problem.

Looking at crucial success factors, the presence of “real” economic opportunities are common in LED talks. Hadingham explains what this means to him. “Early attempts at LED in South Africa were focussed on small poverty alleviation interventions, the infamous ‘grow, bake and sew’ projects. While these project are important for households in securing their livelihood, they are unlikely to lead to the kind of sustainable job creation that was envisaged. The GTZ (now GIZ) LED project brought the competitiveness discourse to the LED debate, enhancing and exploiting local competitive advantages (local attributes responding to market demand) that could result in viable businesses and sustainable jobs. This is what I would understand by “real economic opportunities,” he says.

As with almost any aspect (be it in business or society) in South Africa, a committed and visionary leadership is a crucial component for it to thrive. According to Hadingham, “leadership of this nature has to cohere a vision and use that as a basis to inspire economic stakeholders to try ‘business unusual’, to do things differently or to try something new. A ‘street-fighting’ leadership is needed: (small) political, smart, diplomatic, willing to fight when necessary, kiss and make up when required, flexible and able to adapt to change rapidly,” he says.

Hadingham concludes with some final insights regarding the role of EDAs in boosting South Africa’s bottom line. “EDAs are not ‘magic bullets’ that will solve South Africa’s economic development problems overnight, but properly conceptualised; focusing on a well understood and articulated economic problem; drawing in the right partners and doing the right things, they can make an invaluable contribution to job creation. And when the problem is solved they should find a new problem or shut down.”